Consistent Contract Terms are Key to Successful Construction Projects

By AIA Contract Documents

December 13, 2022

Both large and small construction projects can involve an array of parties and contract variations. When considering whether to perform work on a construction project, it is important to consider whether the different contracts between the project parties are consistent with one another, including provisions that flow down from upstream contracts into subcontracts and vendor agreements. On certain projects, a subcontract will have provisions that “flow down.” Flow down provisions are the terms and conditions of an upstream contract (usually the prime agreement between the owner-contractor or design builder) that apply to each subcontract that the prime contractor enters into as a part of its work. Further, flow down provisions incorporate the upstream contract, in whole or in part, into the subcontract, causing the subcontracting parties to be bound by the arrangement between the owner and prime contractor. If a subcontract is subject to upstream contractual requirements, the subcontractor should obtain a copy of the upstream contract being flowed down or applied to the subcontract. Without a copy or awareness of the flowed down provisions, the subcontractor may be agreeing to terms to which it has neither seen nor have awareness of. In this case, the subcontractor may not be fully aware of its scope of responsibilities on the project. In many jurisdictions, a subcontractor in this scenario may be expected to comply with the upstream contract terms flowed down into the subcontract, even though the subcontractor may not have exact knowledge of these terms.

Similarly, when considering whether to perform work on a construction project, parties to an agreement should consider how claims on the project will be handled as the project progresses. For example, where a subcontractor asserts a claim, the subcontract may not provide for a dispute resolution process. Rather, the upstream agreement may detail a claims process, as well as arbitration, mediation, or litigation for dispute resolution. If these terms are flowed down, then the subcontractor could be bound to those same claims and dispute resolution processes. The subcontractor may lose its opportunity to assert such a claim if it fails to comply with the flowed down claims procedures. Even worse, the subcontract terms could conflict with the terms flowed down from the upstream contract. If the upstream contract takes precedence over conflicting terms in the downstream contract, then the subcontractor may rely on faulty or inapplicable terms that may impact the viability of its claims.

Another example for consideration is consistent contractual steps for recovery if the project suffers from delays. The downstream subcontract may not address the avenue for recovering against delays experienced on the project. However, the upstream contract may flow down a no damage for delay provision, ultimately barring contractor claims against the owner for delays, and likewise bar the subcontractor from such claims against the prime contractor.

In all, flow down provisions impose obligations and responsibilities on downstream parties that are beyond the terms on the face of the contract. A party who accepts a contract that includes flow down provisions without obtaining a complete copy of the prime contract and its subparts, like general conditions, supplementary conditions, and exhibits, is assuming potential obligations and liability without a complete understanding of the project’s requirements or their exposure to risk. For every construction professional, a key to successful projects is having consistent flow down terms throughout the contracts on the project to ensure a complete understanding of each party’s obligations and responsibilities during the lifecycle of the project.

AIA Contract Documents has provided this article for general informational purposes only. The information provided is not legal opinion or legal advice and does not create an attorney-client relationship of any kind. This article is also not intended to provide guidance as to how project parties should interpret their specific contracts or resolve contract disputes, as those decisions will need to be made in consultation with legal counsel, insurance counsel, and other professionals, and based upon a multitude of factors.